You want to gift someone a car but you’ve heard that selling the car for one dollar will save you money on taxes. But is that just a myth, or is it true?

In this article, we’ll cover everything you need to know about Pennsylvania car sales and gift taxes and even provide a checklist to help get you started!

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Is it better to gift a car or sell it for a dollar in Pennsylvania?

Whether you’re trying to help someone or give a car to a loved one, it’s better to gift a car than sell it for $1 in Pennsylvania.

That’s because whenever a car is sold, the purchaser is subject to state sales tax on the purchase price or the vehicle's fair market value. In Pennsylvania, the vehicle sales tax is 6% with the exception of the City of Philadelphia and Allegheny County. Residents of Philadelphia are subject to an 8% vehicle sales tax and 7% for Allegheny County residents.

You may think paying between 6% and 8% sales tax on a single dollar is just a few cents–so what’s the difference? The Pennsylvania Department of Transportation (PennDOT) places the minimum value of a car over 15 years old at $500 and will issue an audit letter for a $1 vehicle sale. Now the recipient of your “gift” will have to pay a sales tax on the fair market value at the time of the purchase.

But what about the gift tax on the car’s fair market value? Along with California and Florida, Pennsylvania is one of the few states that waive taxes for car gifts. You’ll just need to fill out the PennDOT

MV-13ST Affidavit of Gift form

and file it along with the other transfer documents at your local title and tag office to gift a car in Pennsylvania.

How gifting a car works in Pennsylvania

Now that you know gifting a car is a better option than selling it for $1, let’s walk through how the car gifting process works in Pennsylvania.

1. Pay off outstanding loans

Is a car really a gift if it comes with outstanding debts? If you’re genuinely gifting a vehicle, the answer is no. Transferring a title on a used car with a lien is a complicated process, so paying off any loans and removing the liens before officially gifting the car is a good idea.

MORE:

How to pay off your car loan faster

2. Negotiate the gift terms

While gifting a car to a friend, family member, or neighbor in need is a kind gesture, it can become complicated if you don’t set gift terms and expectations. Even without the initial purchase price, car ownership is expensive with the cost of gas,

car insurance

premiums, maintenance fees, and repair bills. This may lead the recipient of your gift to wonder who will cover these car-related expenses. After all, a gift implies no strings attached.

That’s why it’s important to discuss who will cover those expenses along with the titling and registration fees with the recipient of the car before making the gift official. You can expect a $58 title transfer fee, a $36 vehicle registration fee, and depending on where you live, an additional $5 county fee, and $39.99 inspection and emission test fee. You should also keep in mind these Pennsylvania car ownership expense averages:

Minimum liability insurance in Pennsylvania: $2,152 per year

Full coverage insurance in Pennsylvania: $2,433 per year

Vehicle maintenance costs in Pennsylvania: $900 to $1,800 per year

Fuel costs: $1,572 per year

Of course, these costs vary depending on the type of vehicle you are gifting and who you’re gifting it to, but you’ll need to make an agreement outlining who will be paying for all of them.

3. Purchase insurance

Before you can begin finalizing the car gift with PennDOT, the giftee must provide proof of insurance that meets Pennsylvania’s minimum requirements. If they already have car insurance, it’s as easy as adding the new car to their policy.

However, their insurance premiums could rise as a result of the gift depending on factors like the value of the car and its safety ratings. That’s why it’s always a good idea to price comparison shop for car insurance quotes with several companies and switch to a lower rate to help save money on car expenses.

MORE: How to find temporary car insurance in Pennsylvania

4. Create a bill of sale

Even though no actual money was exchanged, you’ll need to write a bill of sale to register the gifted car in Pennsylvania.

While there is no required format for a Pennsylvania bill of sale, you can download and fill out a

bill of sale template

which includes a section to indicate that car is a gift.

If you decide to create your bill of sale, make sure you include the following:

Car make, model, and year

Vehicle identification number (VIN)

Odometer reading

License plate number

Full names, mailing addresses, and signatures for both seller and gift recipient

5. Fill out an Affidavit of Gift to avoid sales tax

You’ll need to file an

Affidavit of Gift (MV-13ST)

with your local PennDOT agent to avoid paying taxes on the gifted car. This form allows you to claim tax exemption for a gifted vehicle.

The form must be completed by both transferor and the transferee and be submitted to the PennDOT agent at the titling and registration appointment along with proof that sales tax was paid on the original purchase. If the gifter does not have the original bill of sale to prove that sales tax was paid, the giftee will have to pay sales tax on the current fair market value of the vehicle.

6. Complete a title transfer and registration

To make the gift official and legally transfer the ownership of the vehicle, you’ll need to transfer the title of the vehicle to the giftee and register the car in Pennsylvania. Without completing a title transfer, you’ll still be responsible (and liable!) for the car.

You and the gift recipient will need to go to the local titling and registering office to fill out the back of the title and complete the registration form with a PennDOT agent.

You’ll need to bring the following items with you:

Your Pennsylvania driver’s license

Original vehicle title or replacement title

Bill of sale

Proof of car insurance

Payment for titling and registration fees

Completed

MV-13ST Affidavit of Gift form

When filling out the back of the form, make sure to write “GIFT” instead of the purchase price. Once you and the giftee sign the title in front of the PennDOT agent and register the vehicle, the car will be officially gifted to the new owner!

MORE: Title transfer in Pennsylvania

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What to keep in mind when gifting a car in Pennsylvania

Opting to gift a car instead of selling it for a single dollar in Pennsylvania can save the giftee tax money and you a potential PennDOT audit. If you’re considering gifting a car, here’s what you should keep in mind:

Involving the gift recipient in the car-buying process and bringing them to the dealership is much easier than the gifting process. Just because it’s not a surprise doesn’t mean it isn’t a great gift!

Get ready for lofty insurance premiums if you’re gifting your teen a car because they just got their driver’s license.

Make sure you have proof that the sales tax was paid on the original purchase before gifting the car. If not, your gift recipient will be stuck paying sales tax on the current fair market value.

MORE: How to donate a car in Pennsylvania